Should you renew your COE or buy a new car?

As the Certificate of Entitlement (COE) of your car races towards its expiration, you may have to decide between renewing the COE and buying a new car. Here is a quick look at the pros and cons of each choice.

Let the numbers speak*

Renew 10-year COE for Category A car

Purchase brand new Category A car

Purchase price

$34,197 **

$96,999

Upfront cost

$34,197

$29,100 #

Loan amount

-

$67,899

Monthly instalment

-

$966

Interest rate

-

2.78%

Annual depreciation

$3,420

$8,714

Rebate after 10 years

-

$9,860 (PARF value)

Based on this illustration, some drivers may find the upfront cost of renewing an existing car’s COE prohibitive. While there are loans for renewing the COE, they carry higher interest rates compared to traditional automobile loans.

Condition of the car

Next, consider the state of your existing ride. You may be able to extend the validity of your COE, but can the car actually go the distance and continue to serve you well in the years ahead? A lack of maintenance and damage through use or even accidents might adversely affect the state of the car.

Other “hidden costs”

Road tax for cars over 10 years old increases at a rate of 10% per year, reaching an additional cap of 50%. Similarly, insurance premiums tend to increase for older cars, generally higher by 10-20% compared to that of new cars.

Modern cars also typically outperform older models in terms of fuel economy. Moreover, worn out engines tend to consume fuel at a higher rate. If your daily commute involves travelling across the island, then a new car could be a more cost-efficient option.

What about an older but more upmarket car?

If your car is an older upmarket model, does it make sense to renew the COE? In general, older upmarket cars tend to feature larger engine capacities, and more electronic gizmos. A larger engine would attract high road taxes while consuming more fuel, with a greater chance of electrical gizmos failing and replacement parts not being as readily available. Don’t forget that older upmarket cars would also have higher PARF values, so you’ll be forgoing that rebate as well.

Based on car prices and COE premiums at the time of writing, the strongest case for renewing a COE is for cars in good condition, that have low PARF values and where the upfront cost of the Prevailing Quota Premium (PQP) isn’t excessively prohibitive for your wallet. If you are seeking lower upfront costs, advantageous interest rates for your car loan, and the assurance of warranties, then purchasing a new car might be the better option.

Finally, it is important to consider how the car ownership fits into your overall budget. You can make use of budget calculators provided in online marketplaces. After working out your numbers, you can then make an informed decision on your ride.

* Costs are illustrative only.** PQP for August 2018, based on COE quota premiums from May – July 2018.# Upfront cost for a new car is 30% of purchase price for cars with OMV less than or equal to $20,000 as at time of writing.